Yesterday Hong Kong Police ("HKP") arrested 15 people on suspicion of conspiracy to defraud and money laundering by manipulating shares of Next Digital (282.hk). There have been lots of online discussions with some misconceptions.
Some laymen criticized HKP for accusing stock market speculators or prohibiting "buy low sell high" (profit making). Stock market speculation is of course not illegal, but manipulation is another matter. Stock market manipulation refers to fraudulent activities aiming at distorting the actual demand and supply in order to create a false or misleading appearance of the price or turnover of a stock. It is indeed a financial crime specified under the Securities and Futures Ordinance ("SFO").
If a securities firm has identified such fraudulent activities from its clients, it is obliged to report them to Securities and Futures Commission ("SFC"). A suspicious transaction report ("STR") would also be filed to Joint Financial Intelligence Unit ("JFIU") under HKP's Narcotics Division because the use of proceeds from a financial crime has the implication of money laundering. Usually HKPF would not take any action until SFC has concluded that a serious offence was committed.
Whether or not the share trading constitutes market manipulation should be the professional judgement exercised by SFC at the outset. Typically SFC spends a long period of time on the investigation process by collecting tons of records from securities firms and questioning the suspects. According to SFO's relevant provisions, SFC is able to mandate any person to answer questions (but their answers may not be admitted as evidences in criminal proceedings to avoid self-incrimination).
SFC can refer a potential market manipulation case to Department of Justice ("DoJ") to assess whether the case should be criminally prosecuted and, if so, whether the case should be prosecuted on indictment by the DoJ in the higher courts or summarily by SFC in the Magistrates’ Courts. SFC seldom requests HKP to make an arrest unless the suspect has a high chance to flee.
Unfortunately, it appears that in Next Digital's case SFC has been bypassed by HKP. The public is hardly convinced that HKP is more professional than SFC to conduct an investigation into a market manipulation case, not to mention it hastily completed the process within one month. Moreover, HKP bypassed SFC only for Next Digital's case but not for numerous other suspected cases, why?
If Hong Kong still has separation of powers (already denied by the HKSAR Government), SFC should challenge HKP's reckless action. But now SFC has chosen to keep silent.
Latest update:
Today's evening SFC eventually made a statement on HKPF's action. Apart from those wishy-washy words (implying HKP is not professional), SFC left only such remark: As investigations are continuing, the SFC is not in a position to comment any further.
I am afraid Hong Kong would soon be transformed from an IFC into a NFC.into a NFC.
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